Sunday, February 28, 2010
Europe Union Moves Toward a Bailout of Greece
The European Union is moving toward the first bailout in the history of its common currency. It is expected to involve loan guarantees from the German and French governments to encourage their banks to buy Greek debt. With no structure in place for dealing with a threatened default within the 16-nation euro zone, officials are making up the rules as they go along. This would be the worst crisis that involves the Euro which was established a decade ago. Since Germany knows that they will be covering most of the costs, they are reluctant to go along with the bailout plan. The Greeks have agreed to freeze wages, cut bonus, crackdown on tax evasion and raise the official retirement age.
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It is certainly tough for a country to deal with its financial crisis without being able to modify its monetary policy. Although the EU, especially Germany who will have to bear the brunt of the rescue package, is still reluctant to help, I think it really has little option. Without the support from other countries in the EU, the Greeks would have to seek help from the IMF. This would signal that despite being the biggest and most evolved form of a trading bloc, the EU is unable to cope with serious internal issues. Such reputation may influence the stability within the bloc in the long run.
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